Greek default looms as voluntary debt deal looks set to fail

Authorities in Athens are ready to enforce the controversial collective action clauses, or CACs, to impose the restructuring deal on all bondholders as the number of voluntary agreements look set to fall short of the required amount.

Credit rating agencies have warned they will declare Athens to be in default if the CACs are triggered which would be a dramatic culmination to a three-year rollercoaster ride for Athens, the eurozone and global markets.

While the markets have been ready for a Greek default for months, the move could leave Greece and its banks barred from funding from the European Central Bank (ECB). On Monday, Standard & Poor’s declared Greece to be in a state of “selective default” which led to the ECB announcing it would no longer accept Greek government bonds as security for new loans.
The rating agency said its decision had been prompted by the threat of the CACs and the actual use of them is likely to tip Greece into actual default. The agency said it regarded the process as a “distressed debt restructuring”.

Raoul Ruparel of Open Europe, the London-based think-tank, said: “Greece is likely to struggle to reach the targets for a voluntary agreement so the credit rating agencies are almost certainly going to see this as a default.

"What happens next is unknown territory.
"Greek banks will probably be barred from normal ECB funding and have to turn to the Emergency Liquidity Assistance [provided by the ECB] instead but for how long, we don’t know.”

Greece needs around 95pc of its private creditors to accept the deal by the deadline on Thursday in order to secure its €130bn international bail-out package and avert imminent bankruptcy.

Greek politicians back the use of CACs – which allow the deal to be imposed on all bondholders if 66pc agree to it – being inserted retrospectively if the voluntary agreement falls short.

The uncertainty over the deal on Greek debt put further pressure on the euro last week. The single currency fell sharply against the dollar and other major currencies.

Uncertainty over Spanish willingness to stick to its austerity programme also put pressure on the currency.

Last week, the International Swaps and Derivatives Association (ISDA) declared that there had not yet been a credit event in Greece so there was no need for the credit default insurance instruments to be triggered.
If the CACs are triggered this week, the committee will almost certainly reconsider its decision.


The Telegraph